Selling a new home has gotten harder since June-but KB Home's financial results beat analyst expectations thanks to its shift in strategy.
"Higher mortgage interest rates have further pressured affordability and, together with geopolitical uncertainty and broader economic headwinds, have caused many prospective buyers to be more cautious on purchasing a home," Jeffrey Mezger, KB Home's executive chairman, said in a statement. "Against this backdrop, we produced third quarter financial results that reflected solid sequential improvement."
Despite the beat, the housing market remains slow and choppy. The company issued guidance implying a narrower-than-expected margin on home sales, likely driving the stock's after-hours drop.
KB Home "achieved our goal of returning to a predominantly Built to Order business, CEO Robert McGibney said in a statement. That "contributed to our sequentially higher housing gross profit margin," said Robert McGibney, president and chief executive officer.
The builder reported earnings of $1.05 a share on $1.3 billion in revenue, beating estimates that called for 89 cents a share on roughly $1.3 billion in revenue. The builder's housing gross profit margin was 16.5%, higher than the 16.2% analysts had expected. As high mortgage rates continue to weigh on would-be buyers' willingness to shop for a home, builders' margins have been a point of focus for investors looking for signs of recovery.
It isn't entirely smooth sailing in a rough environment: The company is guiding towards a a housing gross profit margin in a range of 16% to 16.6% for the fourth quarter, a narrower margin than the 17.2% analysts were looking for, according to FactSet. The company also reduced its anticipated margin range for the full year, to 16% to 16.2% for the full year, a narrower range than the 16.1% to 16.5% it guided to with its third-quarter earnings release.
Part of the discrepancy comes from a market slowdown in Southern California, Bill Hollinger, KB Home's chief accounting officer, said on the call. "Slower sales in the third quarter relative to our expectations have reduced the number of higher-priced Southern California homes we expect to close in the fourth quarter," he said.
The stock was swinging in after-hours trading. After initially rising, KB Home stock began to fall shortly before its conference call began at 5 p.m. Eastern. The stock was down 2% shortly before 5:30 p.m.
To understand the beat, it helps to understand differences in builders' business models. There are typically two approaches home builders can take to constructing homes. Building "spec," or speculative, homes involves starting construction before a buyer is identified, while built-to-order houses are begun only once a buyer signs a contract. Many builders favor one or the other, but operate with a mix of both.
After building more spec homes in the years following the pandemic's mad rush for homeownership, KB Home said in its 2025 annual report that it planned to increase its mix of build-to-order homes to 60% to 70% of the homes it delivers to customers, up from roughly 55% in 2025.
"Our Built to Order homes are our core competency, a key competitive differentiator that typically generate higher gross profit margins than inventory homes started without a corresponding buyer," the company wrote in its 2025 filing.
In the third quarter, roughly three-fourths of KB Home's deliveries were built-to-order houses, McGibney said in a statement. "Our built-to-order business model is built to operate exactly in these conditions," he said on a call.
The company's overview of macroeconomic factors give investors a taste of what builders and buyers are stomaching more broadly.
Yes, mortgage rates-which Mortgage News Daily pegged at 7.17% on Tuesday-are a headwind, executives said on the call. But building costs are, too, said McGibney. "While our overall average for direct cost was lower in the third quarter, we experienced some increasing cost pressure from fuel, general inflation, and tariffs as the quarter progressed," he said, adding that those factors will raise direct costs for fourth-quarter home deliveries.
Buyers remain cautious, Mezger said, while competition, in the form of mom-and-pop home sellers, has increased. "Resale inventory, which is our largest competitor, has increased to its highest levels in a decade," he said. "We've seen pricing starting to decline in more of our markets, adding to the tension.
In other words: Investors banking on an eventual housing rebound should temper any hopes that they will see it in the remainder of 2026.
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